Whether you’ve seen it on the news or overheard people in the office talking about it, you’ll likely have heard of the recent decision from the UK to leave the European Union. Following a public referendum regarding the issue, political and financial pundits have been out in droves trying to predict what is going to happen to not only the British economy, but the effect of Brexit on the wider world too.
The pound is tumbling, the stock market is freezing, Britain is certainly going through a roller-coaster ride as a result of its decision. You can bet it’s going to affect us even here in Australia too. These major political events always have something to be learned from, but you might be surprised by how much the average Australian could stand to learn from Brexit. Let’s take a look:
The British have decided to opt out of the European Union.
Expect the unexpected
The Brexit decision came as a surprise to many, average people, economist and politicians included. This wasn’t an oversight on their part: several polls on the subject including research firm TNS and the Bloomberg Brexit Tracker had either the result too close to call, or even the “remain” crowd on the winning side right up until the last few weeks and days.
As a result, many people were in shock when “leave” ended up being the majority, finding themselves without a plan for the new political, diplomatic and financial landscape.
Learn from these mistakes: Even if everything seems to be going in your favour, ensure that you have insurance that will cover you in case things don’t end up quite the way that you expected.
Diversify your investments
Even other European currencies are finding themselves falling into a hole of value drops and stagnation.
One of the largest effects of Brexit was the tumbling of the value of the pound. In fact, the sterling reached values not seen since 1985, dropping down below even recession levels. This was a huge hit on the economy of Britain, as people found that their capital was worth significantly less in the international market than before.
The Treasury of the UK scrabbled to put plans in place to contain the damage, but now even other European currencies are finding themselves falling into a hole of value drops and stagnation. Investors who had bought primarily into foreign currency or even solely into the pound are trying to mitigate the damage to their portfolios, and it’s taking the market under with them.
Australian investors can learn from this by understanding the importance of diversification – not only in types of investment assets, but also in where they are placed. If all your investment properties were in Sydney and the market bottomed out, you would be in much the same position as investors in the sterling. Spread your net and retain some stability if things go wrong.
Plan ahead
Ensure that you keep in contact with the financial experts in your life.
Following the unexpected result and the subsequent financial damage, one of the main issues that cropped up was that many people didn’t seem to have a plan for such an event.
While multiple government departments were already constructing frameworks to help the pound recover from the drops seen even prior to the vote, many of the average consumers both internationally and within the country had little understanding of the ultimate financial damage that the downturn could cause.
The lesson here is to ensure that you keep in contact with the financial experts in your life. These experts will have the knowledge of what these kinds of events could mean to you personally, rather than worrying about it solely on a grand national scale.
Such a large change will have ripple effects that touch us even here in Australia, but with the waves come lessons to be learned. If you want to stay on top of your own financial goals, make sure you get in touch with the experts at Eclipse Financial Services.
